Jakarta. An Indonesian business group said Tuesday that the US looming tariffs could add pressure on the national footwear industry, but there was still time for Jakarta to negotiate with Washington.

Trump’s freshly uploaded barrage of letters to some world leaders has caught global attention, including businesses in Southeast Asia’s largest economy. Trump wrote to his Indonesian counterpart Prabowo Subianto that he would proceed with his initial plan to impose 32 percent tariffs on Jakarta starting on Aug. 1, but remained open to changing the rate either upward or downward. Trump told Prabowo that he would bring the tariffs down to zero percent if Indonesia agreed to invest in the US.

Shinta Kamdani, the chairwoman of the Indonesian Employers Association (Apindo), told reporters to view Trump’s letters as “part of the negotiation dynamics” as Jakarta continued its efforts to clinch a deal with Washington. 

“But at the same time, if [Trump] really decides to implement these tariffs fully, it will only add pressure to the labor-intensive sectors that have a large export share in the US, including textile, footwear, furniture, and toys,” Shinta said Tuesday. 

The tariff threats as laid out in Trump’s letter -- which had made headlines for its random capital uses -- only set another challenge to Indonesia’s economy. Indonesia has been struggling with a Purchasing Managers’ Index (PMI) slump. The index had dropped from 47.4 in May to 46.9 the following month. A PMI reading of below 50 represents a contraction compared to the month prior. Other existing obstacles include rising production costs and declining global demand, according to Shinta.

“US-bound exports only represent 10 percent of our total exports … And exports only have a relatively moderate contribution to our gross domestic product [GDP], standing at around 21 percent. There are declining demand risks, imports of cheap or illegal goods, not to mention high business costs. These are all actual challenges that we really need to anticipate together,” Shinta told the press.

Government data showed that Indonesia was among America's top footwear suppliers. Indonesia exports $2.6 billion worth of footwear to the US. Topping the suppliers' list were China ($10.3 billion) and Vietnam ($9.1 billion), according to top economic minister Airlangga Hartarto in April.

Airlangga at the time was upbeat that Indonesia could replace the top two suppliers, citing that they had to face much higher tariffs. Vietnam initially had to face 46 percent reciprocal tariffs but had recently managed to secure Trump’s approval to bring it down to 20 percent. China, meanwhile, had to cope with a levy as high as 145 percent, although Beijing currently has its US-bound goods subject to 30 percent across-the-board tariffs.  

Economic Diplomacy

According to Shinta, the August 1 deadline shows there is still room for diplomacy. However, the final outcome will depend on how solid and well-measured Indonesia’s economic diplomacy is in the coming talks. Prabowo has sent his chief negotiator Airlangga to the US for another round of negotiations following Trump's letter.

In this three-week negotiating window, Shinta said that Jakarta could pursue a “mutually beneficial scenario” by buying more American strategic commodities, including cotton, corn, dairy, soybeans, and crude oil. 

Indonesia had already planned on buying more American fuels and agricultural products as part of a to-be-signed memorandum of understanding (MoU) worth $34 billion. This deal was supposed to be signed early this week, but there were still no updates on the signing as of now.

Shinta also called for Indonesia to diversify its export markets to non-traditional markets, while also improving the efficiency of its supply chains and cutting its bureaucratic red tape.

“Indonesia should also strengthen its trade remedies,” she said, referring to the trade policy tools that countries may take to protect their domestic industries from unfair imports.